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The most important aspect of investing is discipline. Just think about Grocery shopping, would you rather just wander around every aisle and pickup whatever looks good or have a shopping list and only purchase if the stuff is reasonably priced??? . I am sure you will pick the latter choice My core principle is based on “Never losing money” . Thus I would rather be happy to pass on 100 good opportunities than to be stuck with a bad one.
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Following is my investment process.
1. Building the watchlist : Through this step I scan through all the businesses for a particular sector and choose the businesses that I (i) Understand (ii) Have sound balance sheet and healthy cash flow (iii) Which are somewhat predictable. If the business matches these criteria then it becomes part of my watchlist. 2. Quick valuation : This is the 3 line valuation that you will find below every stock chart. This I develop after an initial quick analysis of the business’ 10-k report. 3. Regular monitoring of the stock : My goal is to browse through my watchlist at least once every week and spot the stocks that are trading way below my valuation. 4. Deep dive of Investment candidates : For stocks that are trading below my valuation I again look through its SEC reports. This time I look its latest 10-K and 10-Q reports. This second level analysis is done to gauge the factor of safety I will need to make sure I will not loose my money. 5. Investment decision : Let us assume that I figure out a factor of safety of 2. This means if my valuation of the stocks is $40 then I would only buy if its trading below $20 ($40 / 2). 6. Post Investment monitoring : Once I buy the stock I monitor its fundamentals every quarter and make sure the management is following a path that I had predicted, if not then sell the stock. 7. When to sell? If my valuation is $40 and the stock has reached $80 then I would sell the stock because its overvalued. |
